УДК 339.923

Russia and The Belt and Road Initiative: new challenges and opportunities

Данько Екатерина Андреевна – магистрант Российского университета дружбы народов

Верещагина Наталья Леонидовна – магистрант Российского университета дружбы народов

Abstract: The Belt and Road Initiative provides opportunities for economic cooperation and infrastructural development for the participating countries. However, since the start of the initiative, the purpose and role of Russia in the Chinese initiative have been widely discussed in Russian scientific community. The purpose of this article is to define the role of Russia in China's Belt and Road Initiative in the context of the ongoing geopolitical transformations. Due to anti-Russian sanctions and the reorientation of the Russian economy to the east, it is worth carefully assessing Russia-China cooperation. The article attempts to highlight the current problems of investment in Russian projects within the framework of the Belt and Road Initiative, and to assess the results of joint projects in the transport and energy sectors. The results of the study demonstrated the new challenges and opportunities for Russia in terms of the Chinese initiative. On the one hand, the Belt and Road has strengthened relations between Russia and China. On the other hand, not all the announced projects have been successfully completed.

Keywords: the Belt and Road, China, Russia, investments.

Ключевые слова: инициатива «Один пояс, один путь», Китай, Россия, инвестиции.

The changes of recent years have led to transformations in the international arena. The formation of new centers of power has intensified the rivalry for spheres and regions of influence between countries.

Rapid economic development and a balanced foreign policy have enabled China to strengthen its position on the world stage. To further develop its geostrategic position and foreign economic relations, since 2013, China has been actively promoting its own international economic project, the Belt and Road (BRI).

Since the beginning of the China initiative, Russia has been assigned a key role. Russia's geographic location, long borders, energy resources, political influence, and historical past make it a promising participant in China's strategy. For Russia, accession to the BRI has helped both to further develop bilateral relations and build new trade and economic ties, as well as, to develop the eastern regions of the country – Siberia and the Far East.

Despite all the advantages of the BRI, since the beginning of the project, many domestic researchers and political scientists have been cautious about the project, fearing the formation of economic and political dependence on China. However, current world events create new conditions for cooperation within the Chinese project [1, p. 621].

Meanwhile, Russia is facing new opportunities, as well as new challenges. The Ukrainian crisis, the sanctions pressure from Western countries, the sabotage of European pipelines are forcing Russia to accelerate its «Eastward shift» and to develop relations with its Asian partners. In this context, it seems logical to strengthen trade and economic relations with China and to develop Russian participation in non-Western projects like the BRI. However, the threat of economic and political dependence on China is increasing.

The current transformation of the system of international relations requires a thorough assessment of new opportunities and threats to Russia in various international projects, including the Chinese BRI initiative.

The BRI story formally begins with Xi Jinping's speech at Nazarbayev University on September 7, 2013. In his speech, the president put forward the initiative of the New Silk Road. On November 12, 2013, at the third plenary session of the Central Committee of the CCP it was announced the development of the Silk Road Economic Belt and the Maritime Silk Road.  Later these two projects were merged into a single economic cooperation project "Belt and Road" [8, p. 149-150].

Officially, the initiative includes five areas of cooperation: policy coordination, infrastructure interconnection, free trade, free movement of capital and cultural exchanges. Several mechanisms and measures have been developed to achieve the intended objectives, initiated primarily also by the Chinese side [10, p. 180].

The BRI aims to promote relations, in particular economic relations, the development of transport routes and sociocultural relations between the participating countries. At the same time, the initiative is associated with a shift in Chinese foreign policy away from the principle of "hiding its capabilities and keeping a low profile". The scale of the BRI is helping China become a regional center of force. However, the Chinese project cannot be called perfect and universal; among the main problems is the lack of a unified project document fixing the main stages, routes and activities.

The U.S. and EU countries are skeptical about the goals of the China Initiative, fearing the spread of China's economic and political influence [9, p. 36]. Amid the complication of Russia’s relations with the West, China increasingly sees Russia as an «important strategic ally». For Russia, the BRI has played a significant role in Russian-Chinese relations.

Russia was among the first nations to support China's initiative. This has opened up new prospects in Russian-Chinese economic cooperation, and the cooperative development of transport infrastructure has given Russia an opportunity not only to establish foreign relations, but also to accelerate the modernization of the underdeveloped regions of the Far East.

In May 2015, during Xi Jinping’s visit to Russia, an agreement was signed between the EAEU and the Chinese initiative the Silk Road Economic Belt. The interconnection of projects is aimed at harmonizing the relations between China and the EAEU countries.

In the theoretical part of the initiative, relations between Russia and China are developing successfully. However, project implementation continues to present a number of challenges. Thus, in March 2022, 147 countries are part of the BRI, of these 140 countries signed a Memorandum of Understanding with China on cooperation within the framework of the BRI (Memorandum of Understanding on Belt and Road Cooperation). This agreement has not yet been signed between Moscow and Beijing.

In 2022, Chinese investment under the BRI totaled $63.1 billion. The total investment from 2013 to 2022 reached $912.6 billion. Since the beginning of the initiative, Russia has been one of the countries which has received annual funding within the BRI. According to a report by the Green Finance & Development Center (GFDC) of the Fudan University in Shanghai, in 2022 Moscow received no investments [12, p. 430]. According to Russia's trade representative in China A. Dakhnovsky, a possible reason could be the absence of projects that comply with the BRI conditions. In the statement the official also stressed that «Russia has never considered itself a country of the BRI» and meant the conjugation of projects.

Figure 1. The dynamics of Chinese investments within the BRI in 2013-2022, $ million. Source: calculated and built by authors according to China Global Investment Tracker.

From 2013 to 2022, Russia received $38.6 billion from the BRI, which represents 4.2% of total Chinese investment in the member countries. Most of the received investments go to joint projects in the energy, transportation and logistics, chemical and extractive industries.

In the initial phase of the Chinese project, the formation of common transport corridors is of key importance. The establishment of a single road network across the territories of the BRI member countries will lay the foundation for further cooperation. Russian participation in this area benefits all participating countries in general and Moscow in particular. Part of the overland route in the north passes through Russian territory. This route contributed both to increased security of movement due to instability in Central Asian countries and to the possible reduction of transfer costs.

Figure 2. Map of the Belt and Road Initiative. Source: built by authors according to Mapping the Belt and Road Initiative: this is where we stand.

In the transport and logistics sector of cooperation, the creation of road, rail and maritime routes is being considered. Among road routes, the Europe-Western China route remains the key project. The Russian state corporation «Avtodor» and the China Development Bank signed a memorandum on financing of the project in the autumn of 2015. The project description says that by 2024 it was planned to build 8 thousand kilometers of road along the territory of Russia, China and Kazakhstan [9, p. 39].

According to the portal of the Ministry of Transport of the Russian Federation, the Russian part of the route will be 2,300 km. Construction and road repair is scheduled to be completed by the end of 2024, but the project faces several challenges that raise doubts about the date when the road will be put into operation as scheduled.

The Europe-Western China project includes both repairing old road sections and creating new ones. One of the largest and most problematic sections of the project is the M-12 "Vostok" highway from Moscow to Kazan. According to the reports of the Accounts Chamber of the Russian Federation, as of February 2023, the cost of construction of the M-12 highway increased from the planned 622.8 billion rubles to 911.7 billion rubles. In addition, it is noted that documentation development lags behind funding.

Other participants in the Europe-West China project have already completed their sections. China delivered its section in 2017 and Kazakhstan completed its section in 2019.

The attention of Chinese investors is attracted not only by state initiatives, but also by private ones. The project of Russian entrepreneurs "Meredian" (or "Shanghai - Hamburg") may become part of the BRI routes. Initially, this route was supposed to connect the border points of Russia and Belarus with those of Russia and Kazakhstan, bypassing major cities to save time. Construction was to begin in 2022, but geopolitical processes interfered. In the middle of 2022, it was announced that the route was to be changed, now the route should connect the east of the country with the South-Eastern Chord Yekaterinburg – Krasnodar. For China, it could provide access to the Caspian Sea. The new route is still under development, but it has been discussed that one of the ending points of the route could be Iran. Until 2022, the Chinese side did not show interest in supporting the project «Meridian», but according to the first Deputy Chairman of the Board for Investment Policy «Avtodor», several Chinese companies have expressed interest in building a new route, and cooperation mechanisms are being developed.

The formation of a single transport network provides for the creation and modernization of railway connections between the countries. The volume of rail freight moving eastward in 2022 surpassed the volume of freight moving westwards. The total number of loaded and empty containers transported increased last year by 0.3% compared to 2021, while the customs services of the Russian Federation note the shortage of infrastructure and collapse in the Far East. The development of rail connectivity within the BRI in this context draws more attention.

The central project in this sphere of cooperation is the Eurasian High Speed Freight Rail Corridor (HSR Eurasia Beijing – Moscow), announced in 2015. The planned length of the route from Beijing to Moscow is 7,000 km. The project consists of three parts - an already completed section in China and the construction of two new sections in Russia and Kazakhstan. Beijing was ready to provide financing for the construction of the Moscow-Kazan high-speed railway on the Kazan-Astana section, which was estimated at $243 billion. In 2020, the Moscow-Kazan high-speed rail project was recognized by the Russian authorities as expensive and postponed for a while, which disrupted the plans of the Chinese partners. Currently, the Russian Ministry of Transport intends to review the project again. The constant change in the status of Russian projects forces Beijing to consider other options for building routes to Europe. For example, for the Chinese initiative of the Beijing-Moscow Eurasia High-Speed Railway, alternative projects bypassing Russian territory may substitute. For example, the Trans-Caspian transport route and the China-Kyrgyzstan-Uzbekistan railroad can do this.

Another potential route from China to Europe through Russia could be the Northern Sea Route. In 2017, China and Russia agreed to create the Polar Silk Road based on the Northern Sea Route. In 2019, an agreement was made to connect the Northern Sea Route with China's Maritime Silk Road [6, p. 188]. However, the economic benefits of the Northern Sea Route transport of goods need to be more thoroughly assessed. Despite the technical development of the fleet, natural conditions continue to create barriers to active traffic, and complex projects under discussion require substantial financial investment. In general, the use of the Northern Sea Route in the BRI is more in line with Chinese ambitions to develop the Arctic than the realistic prospect of using the route for the movement of goods.

The development of transport routes from China to European countries across the territory of Russia faces many issues. Firstly, the bulk of shipping between China and Europe is done by sea due to the cost of transport, which is lower on sea routes than on land. Secondly, the development of transport routes typically involves costly and long-term projects that do not attract private investors. Thirdly, Russia’s transport projects under the BRI are complicated by short periods of state planning for road infrastructure development and many bureaucratic obstacles. The Ukrainian crisis and sanctions pressure have also identified a new obstacle for the development of cooperation projects. The further development of transport projects is complicated by both reputational costs and problems with traffic to European countries through Russian border points. In March 2022, some Chinese companies suspended cargo transit through Russia. In January-September 2022, transit decreased by 17.6% over the same period last year. These problems lead to the development of alternative routes through Central Asian countries, which deprives Russia of the benefits of participating in a unified transportation network.

Another key focus of the Chinese initiative is the expansion of energy cooperation with member countries. As part of this objective, work is underway to construct oil and gas roads, tanker terminals and liquefied natural gas gasification. Russia, as a major player on the fuel and energy market, can become a valuable participant in this direction of development of the initiative, and in the context of the reorientation of markets, this direction only strengthens Russian interest.

Russia and China are active in working on joint projects in the oil and gas industry through the BRI. In particular, China National Petroleum Corporation (CNPC) and the Silk Road Fund are the sponsors of the Yamal LNG, Novatek sold 20% in 2014 and 10% in 2015 respectively to Chinese companies. China Petroleum & Chemical Corporation (Sinopec) and the Silk Road Fund each own 10% of Russia’s Sibur Petrochemical Company. In 2016, the Russian company Rosneft sold 20% of the shares of «Verkhchonskneftegas» to the Chinese company Beijing Gas. China Petroleum Engineering & Construction Corporation (CPECC), affiliated with CNPC, participated in the establishment of the Amur Gas Processing Plant, which was the biggest Chinese participation. The project realization became possible due to the condition of attracting Russian manufacturers of compressor equipment, which is uncharacteristic for Chinese investment projects.

Conditions of entry into Russian projects and alignment of prices are the main obstacles in cooperation [5, p. 47-49]. In 2013, the Russian company Rosneft and the Chinese company CNPC signed a memorandum on the creation of a joint venture for development and production in Eastern Siberia (51% - Rosneft, 49% - CNPC), based on the development of the Middle Bothibin field. In 2014, the same companies signed a framework agreement to sell the Chinese company 10% in the Vankor project [4]. Both of these deals never succeeded. The main reason was the terms of the sale due to price disagreements and the impossibility of long-term financing of Russian projects due to anti-Russian sanctions.

As new projects are actively discussed in the oil and gas industry, there is no active cooperation in other fuel and energy sectors. The first and so far the only Chinese investment project in the coal industry remains the development of the Zachiulan deposit, which is being carried out by the Russian-Chinese joint venture Ugolny Rezrez. The company obtained a mining license in 2014, but the project documentation has been delayed for many years. The pause in the project was caused by the fall in world prices for thermal coal. In 2021 the company Split coal resumed work on the project documentation, Rosnedra rejected the first amendments to the documentation, but the company intends to continue working. The implementation of the project is very slow and still causes concern, as the coal represented in the field is a low-value and therefore low-cost type of coal, which raises the question of its profitability.

The countries are also working on joint projects in the area of alternative energy within the BRI. However, the only project in this sphere was never implemented. In 2014, an agreement was signed between RusHydro and PowerChina on the construction of several hydro storage stations on the territory of Russia, including the Leningrad accumulating power plant, which RusHydro abandoned in 2017 due to lack of cost-effectiveness.

Russia's role in China's Belt and Road Initiative remains ambiguous. Against the backdrop of anti-Russian sanctions by Western countries, Russian-Chinese relations continue to develop actively. However, since the beginning of the Chinese initiative, domestic companies have faced strict investment conditions from Chinese partners, and this problem is likely to recur. Russia should carefully approach its reorientation to the east. Joint work on BRI projects contributes to the development of economic and political contact between the countries. Despite all the difficulties, Russia's participation in the Chinese initiative is still significant.   

References

1. Belova I.N., Egorycheva E.A. Belt and Road Initiative: prerequisites for China’s modern foreign economic policy // RUDN Journal of Economics. 2020. No. 28(3). P. 620-632.
2. Chen Q. Chinese and Russian transport corridors and the belt and road initiative: prospects of sino-russian cooperation // R-Economy. 2020. Т. 6. No 2. С. 100–110.
3. Christoph N. Wang. China Belt and Road Initiative (BRI) Investment Report 2022. // Green Finance & Development Center, FISF Fudan University. 2022. Retrieved from https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2022/ (Accessed 18 March 2023).
4. Countries of the Belt and Road Initiative // Green Finance & Development Center, FSF Fudan University. 2023. Retrieved from https://greenfdc.org/countries-of-the-belt-and-road-initiative-bri/ (Accessed 18 March 2023).
5. Grozin, A. V. China’s Foreign Economic Policy in Central Asia: Achievements and Challengesinthe Energy Sector // Geoeconomics of Energetics. 2021. No. 2(18). P. 34–61.
6. Kolzina, A. L. «Polar Silk Road» as a sphere of strategic partnership of the Russian Federation and China // Udmurt University Journal: Sociology, Political Science, International Relations. 2022. 4(2). P. 186–195.
7. Kulintsev, Y. V. Foreign policy results of the first stage of the Chinese Belt and Road initiative in the Eurasia // Asia and Africa today. 2020. No. 5. P. 5–11.
8. Makeev Y.A. Common Interests of China and Oil Exporting Countries in the Belt and Road Initiative // RAS Journal. 2018. No. 4. P. 147–152
9. Nosov M. G. Russia in the context of the Chinese Belt and Road project. Article 1 // Modern Europe. 2020. No. 5(98). P. 33–45.
10. Sotov S.P. On the issue of cooperation between the Russian Federation and China within the framework of the Belt and Road Initiative: economy and other aspects // Economics and business: theory and practice. 2022. No. 6(2). P. 179-182.
11. Vinogradov, А.О. What is the Belt and Road project and what are the prospects of its «interconnection» with the EAEU // Sonar 2050. 2017. Retrieved from https://www.sonar2050.org/publications/chto-takoe-kitayskiy-proekt-odin-poyas-odin-put-i-perspektivy-ego-sopryajeniya-s-rossiyskim-proekt/ (Accessed 25 March 2023)
12. Wang, X. Discuss the financial cooperation model between China and Russia under the “One Belt, One Road” initiative // Научный аспект. 2023. T. 4. No. 9. P. 428-433.
13. Zhai, F. China’s Belt and Road Initiative: A Preliminary Quantitative Assessment // Journal of Asian Economics. No. 55. P. 84–92.